Many people frown on those who have to file for bankruptcy, insinuating that they did something wrong. People assume that those who have to file for Chapter 7 or Chapter 13 bankruptcy do so because they are frivolous spenders.
That is not the case.
The main reason people end up in financial trouble has nothing to do with their inability to resist temptation – it is medical debt.
The Motley Fool points out that “more than a quarter of US adults struggle to pay their medical bills. This includes folks who have insurance…”
The article goes on to point out that medical debt is the number one source of personal bankruptcy filings.
Medical debt can eat up savings, and for older Americans, this can impact their ability to enjoy retirement. They took a hit during the late 2000s economic crisis, and with the rising medical costs, they are having a hard time.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, as opposed to chapter 7, is a route for those who have a regular income to pay back at least a portion of their overwhelming debt. It is available only to individuals, not businesses.
The debt requirements for chapter 13 are:
- Unsecured debts less than $394,725
- Secured debts less than $1,184,200
As soon as you file, you get a chance to breathe and get legal help to reorganize your debt and work out a payment plan. Filing for chapter 13 can also help you keep your property, something we know is valuable for recovery.
When you file, you get a chance to outline a payment plan based on a negotiated settlement with your creditors. The good news – the amount that is paid back is usually only a fraction of the total original debt.
Payment plans usually last for 3 to 5 years, giving you time to get everything back under control.
There are some debts that are not dischargeable under chapter 7, but under chapter 13 you get a period of time to pay them off. These include alimony and child support. You can also get a chance to catch up on vehicle and house payments.
When you file for chapter 13, all of your debts are consolidated after a negotiated settlement with the creditors. Instead of having to pay each individual creditor, you pay a trustee monthly for the life of the payment plan. That trustee then distributes payment to the creditors.
What Is Next?
Regardless of how you accumulated your debt, you deserve a chance to breathe. Filing for chapter 13 bankruptcy can be a route for yours, especially if you are holding down a good job. It can give you a chance to start fresh, but the filing process is complex. You will need legal assistance to navigate you through the process.